Hindustan Coca-Cola Holdings (HCCH) plans to make a fresh investment of $120 million (Rs 552 crore) in its bottling subsidiary Hindustan Coca-Cola Beverages (HCCB).
With this, HCCH's holding in the bottling arm may rise from 51 per cent to 100 per cent. Seeking the government's approval, HCCH has said that 18 resident Indian shareholders that control 49 per cent equity—banks, financial institutions, former bottlers and employees—are not in a position to invest additional funds and want to sell their stakes.
HCCH's application will be taken up by the Foreign Investment Promotion Board tomorrow.
Confirming the move, a Coca-Cola spokesperson said, “The additional investment will enable HCCB to increase its urban and rural penetration and diversify its range of beverages. The investment will help secure a strong future for the company. The growth and prosperity of HCCB will be of great benefit to employees, vendors, business partners and the community it operates in.”
The HCCB-owned bottling operations work in tandem with 23 other bottling operations owned by 15 franchisees.
The fresh infusion will be for operations and equipment.
The Indian bottling arm will also issue additional equity shares to HCCB. The exact number of shares will be decided later, depending on the number of shares offered for buy-back, exchange rates and capital structure decisions.
The present equity structure of HCCB sets a value of Rs 198.45 crore for Indian shareholders' 49 per cent. This consists of 198 million share of Rs 10 each. HCCH's 51 per cent consists of 206.55 million shares of Rs 10 each, valued at Rs 206.55 crore.
The fresh investment will come partly from its US parent as foreign investment. A part of it may be raised as debt.
HCCH had divested 49 per cent equity in HCCB during 2002-03 at face value in accordance with a clause set by the government while permitting the bottling company to start operations in July 1997. HCCH was required to divest to Indian entities 49 per cent equity in HCCB five years after commencing operations.
In August 2002, Coca-Cola announced plans for a private placement to business partners, banks, financial institutions, employees and strategic investors. The announcement came after its plea for a waiver, or at least a deferment, of the divestment clause was turned down by the government twice.
Present foreign investment norms allow 100 per cent foreign direct investment in food processing companies.
The story so far
July 1997: The government permits HCCH to start operations with a divestment clause after five years through public offer
August 2002: Coca-Cola announces plans for private placements to business partners, banks, FIs, employees and strategic investors; the govt agrees
The Government gives HCCH time till February 28, 2003, to complete the divestment
November 2005: HCCH applies to the government to buy out Indian shareholders
November 11, 2005: FIPB to take up the company’s application to buy back shares